Mother Nature to decide direction of cotton markets

23 Aug '08

3 min read

After dipping back down to 68 cents the New York December jumped above 70 cents in Thursday's trading, eventually settling at 69.84, up 174 points on the day. The rally took its leadership from the outside markets as the oil complex, grains and oilseeds were up strongly.

The market is moving closer to the date when expectations surrounding the 2009-10 marketing year will send prices higher. However, for now, cotton will trade based on the reality of a record world and U.S. carryover. The bias is higher from 68 cent level, but I do not rule out another break back to that level.

Price activity will likely continue in the broad 68-75 cent trading range, but the 71 to 74 cent range should become dominant. Mills are holding out for additional price breaks as evidenced by the export sales report. Yet the grain and oilseed markets are working to carry cotton prices higher in their wake.

Export sales for the week ending August 14, the second week of the 2008-09 marketing year, were a net of 184,200 RB. Upland sales were 183,600 RB. Pima sales were 600 RB. China (48,700 RB); Mexico and Indonesia were the primary buyers of Upland. Turkey was the buyer of the 600 RB of Pima.

Weekly export shipments totaled 269,900 RB. Upland shipments accounted for 258,400 RB. Pima shipments were 1,500 RB. Primary destinations for Upland were China (109,000 RB); Mexico and Vietnam. The primary destinations for Pima shipments were Indonesia (900 RB) and India.

The international textile mills may have their wish for lower prices granted one or two more times; Mother Nature will make that decision. Current market fundamentals will allow for another dip back toward the 68 cent support level. Yet, if the December contract is to move above 73-74 cents, the USDA supply demand monthly reports will have to show a declining crop size.

However, it will take good growing conditions the remainder of the season to pressure the market lower. Too, with more and more concerns regarding the lack of moisture in significant regions of India and China as well, a picture of a smaller and smaller Indian, Chinese, U.S. an Argentinean crop is being painted.

The increase in grain and oilseed prices will keep a solid unpinning below the cotton market. The demand for those crops is expanding for the 2009-10 season and price expectations for those crops are increasing. Cotton prices will have to follow suit or risk U.S. acreage falling another one to two more million acres. It is realistic to expect 2009 cotton contracts rise ten to fifteen cents higher as the 2008-09 marketing year plays out.

Certificated stocks continue as a drag on prices and exemplify the record U.S. carryover. With the New York contract continuing to believe that SLM 1-1/16 inch cotton represents the world crop, U.S. growers will continue to be short changed in the world marketplace. For the grower it is now nothing more than a game of "hold 'em." Value will not come to the grower until 2009.

Bayer CropScience

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